Texas electric rates expected to climb over next two years

DALLAS -- Most Texans have been enjoying relatively low electricity rates in recent years, but prices are expected to rise in the next couple of years as the cost of natural gas increases and power supplies tighten, experts said Thursday.

"Just tell them to lock in prices" for one or two years, consultant Brandon Schwertner of Sumer Capital told his audience of electricity retailers and brokers at the Texas Electricity Professionals Association's annual conference in Dallas.

Still, electric rates in the state's deregulated markets aren't expected to return to the extremely high levels of 2008.

Many electricity retailers offer one-year fixed-rate contracts for 8 to 9 cents per kilowatt-hour, said David Givens, who follows power prices for Argus Media. He predicted that prices could rise about 10 percent in both 2012 and 2013.

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Other speakers also warned of higher prices, citing the state's narrowing reserve margin of power supply over anticipated demand.

"We certainly had a very tight summer," said Trip Doggett, who heads the Electricity Reliability Council of Texas, which manages the state's largest power grid.

During the summer heat wave, ERCOT set a record for electricity demand on three consecutive days in August, peaking Aug. 3 at more than 68,000 megawatts. As a result, Doggett said, ERCOT saw its reserve margin fall from a projected 17.5 percent to 3.8 percent.

While the system was strained by the high temperatures and some unexpected plant shutdowns, concerns are that the state's relatively low electric rates aren't motivating power generators to add generating capacity to meet growing demand. In the state's deregulated market, which includes much of North Texas not served by a municipal or cooperative power company, generators earn money only when they sell power.

Other speakers suggested that the state consider modifying its deregulated market to include so-called capacity payments, in which a generator is paid a set amount to maintain a certain amount of spare capacity for emergencies.

Doggett said ERCOT is also studying ways to get more large power users to agree to contracts that allow for power interruptions during periods of short supply. One approach being explored would expand programs that offer lower rates to big electricity users in exchange for agreeing to reduce their usage during periods of acute shortage.